Bank Nifty fell by 0.80% on Jan, 22, confirming a head-and-shoulders (H&S) breakdown only to be pushed back higher on the following day.
The fake breakdown does not necessarily mean bullish reversal for two reasons:
— H&S breakdown is a widely known technical pattern and markets often crowd out weak hands (bears) by revisiting levels above the neckline (former support-turned-hurdle).
— There are early signs of bearish reversal on the monthly chart. The index carved out a spinning top-like candle last month and has dropped 2.8% so far this month, marking a bearish follow-through to bull exhaustion signaled by December’s spinning top.
The bulls, therefore, should avoid being too ambitious on the back of a failed H&S breakdown.
Trade strategy
Watch out for failure to hold above the descending 10-day MA. That would be a sell signal.
On the downside, support is seen at 30,614 and 30,302 (100-day MA). Meanwhile, resistance is located at 31,720 and 32,000.
The fake breakdown does not necessarily mean bullish reversal for two reasons:
— H&S breakdown is a widely known technical pattern and markets often crowd out weak hands (bears) by revisiting levels above the neckline (former support-turned-hurdle).
— There are early signs of bearish reversal on the monthly chart. The index carved out a spinning top-like candle last month and has dropped 2.8% so far this month, marking a bearish follow-through to bull exhaustion signaled by December’s spinning top.
The bulls, therefore, should avoid being too ambitious on the back of a failed H&S breakdown.
Trade strategy
Watch out for failure to hold above the descending 10-day MA. That would be a sell signal.
On the downside, support is seen at 30,614 and 30,302 (100-day MA). Meanwhile, resistance is located at 31,720 and 32,000.